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Water experts resist retail competition

Water experts have said they are against the introduction of competition to the industry, after environment secretary Caroline Spelman told the Water UK City Conference this week that the government would approach the issue with “enthusiasm”.

Spelman hinted at moves to introduce greater competition in the water industry in her keynote speech to the conference.

Defra’s white paper on water will “describe a path to greater competition” and will look at the findings of the 2009 Cave review – which recommended measures for increasing competition –with “both enthusiasm and pragmatism”, she said.

Spelman also said the government will enact one of Cave’s key recommendations by lowering the threshold for water use above which non-household customers can choose their water and wastewater retailer, from 50Ml/year to 5Ml/year.

However, other speakers at the conference took up positions against competition that ranged from sceptical to vehement.

Investment bank Evolution Securities analyst Lakis Athanasiou said Ofwat was bent on introducing competition “come what may”, and accused the regulator of playing a “dangerous game”.

He said the current industry consensus is that Defra’s white paper will block “Ofwat’s ambitions”.

Athanasiou was met with audience applause for his disparaging comments on the Cave review. “Cave keeps getting paraded in front of us,” he said. “I think, frankly, drop it in the bin.

“I don’t think I’m saying anything that a lot of the companies here wouldn’t agree with, and yet you’ve been very quiet about it.”

He said the data looked at by Cave review was largely based on “finger-in-the-air assumptions or inappropriate comparisons”.

Deloitte used the conference to launch a new report which said that the market mechanisms have not yet been developed in the water sector to deliver the cost benefits from retail competition seen in the energy and telecoms sectors.

Retail competition would be costly and would cause prices to rise by £60 per non-household customer, the report said.

“The costs of retail competition are high compared with the benefits for non-household consumers,” said Deloitte vice chairman and senior utility partner Doug King.

“This leads to such a long pay-back period that the reform’s present assumptions fail the cost-benefit test.”

Water Industry Commission for Scotland chief executive Alan Sutherland defended competition.

He said he could not understand why such debates were going on when the same arguments had already been had five years ago in Scotland, where retail competition means non-household customers have been able to choose their supplier since 2008.

He criticised Deloitte’s report for using old data from the Cave review rather than current data. He said 45% of Scottish customers are paying less for water since competition was introduced.

King responded by saying that “Scotland was at a different starting position from England and Wales. That’s actually very important.”

Thames Water chief executive officer Martin Baggs said he supports competition, but only if customers want it. Meanwhile South West Water chief executive Chris Loughlin said Cave’s “try it and see” attitude is not good enough. He said much more evidence is needed.

Readers' comments (1)

  • I have not studied the Cave review or the methods by which competition has been achieved in Scotland but perhaps that puts me in a good position to pose some basic questions which will be on the lips of many colleagues not at the forefront in ths issue.

    How indeed is competition achieved in Scotland given a single body sits over the industry?

    If there is sufficient "fat" in the current system to allow a variety of suppliers to set up shop, given the multiplicity of management, administration, sales and advertising this requires and still deliver a lower cost service why cannot OWFAT identify and address this so that consumers are not subject to yet another barrage of claims that they are paying too much for a basic service. In this case it is a basic service that, more than any other, customers feel should be a human right.

    I assume that in common with other undertakings the basic network of production and distribution (or collection and treatment) will remain with a single provider, except perhaps at fringe areas. The list of utilities that need to be borne in mind when contemplating excavation is reaching bewildering proprtions. Adding still more for water supply and sewerage competition is not an attractive prospect.

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